Financials' Santa Rally Turning Into Cliff Collapse (Update 2)

Updated with market close information and updated returns and ratios for Bank of America.

NEW YORK ( TheStreet) -- The Santa Clause rally for bank stocks fizzled last night with the failure of House Speaker John Boehner's "Plan B" to come to a vote.

With Boehner (R., Ohio) and President Obama both making concessions during their negotiations over the past week to avert the expiration of reduced federal income tax rates and concurrent spending cuts mandated for 2013 under the Budget Control Act of 2011, the KBW Bank Index (I:BKX) was up 5% from a week earlier, through Thursday's close at 51.90. The index on Friday pulled back over 1% to close at 51.28, with all 24 index components seeing declines, except for US Bancorp (USB) , which was up four cents to close at $32.48..

Shares of Bank of America (BAC) were down 2% to close at $11.29, and Citigroup was also down nearly 2% to close at $39.49. Shares of Wells Fargo (WFC) were also down nearly 2%, closing at $34.48, while JPMorgan Chase (JPM) saw its shares pull back 1% to close at$44.00.

GOP Not Budging on Tax Rates After All

When the Fiscal Cliff negotiations began, President Obama was insisting that federal income tax rates should rise for couples earning $250,000 per year or more, while agreeing that tax-rate cuts should be extended for everyone else. The Republicans initially insisted that federal revenues only be enhanced through caps on tax deductions and the elimination of loopholes.

President Obama last week said he would be willing to limit tax rate increases to taxpayers earning $400,000 per year or more. After criticizing the president for moving slowly during the negotiations, Boehner said that he would move ahead with a "Plan B" bill to raise the federal income tax rate for couples or businesses earning $1,000,000 or more per year to 39.6% from 35%, while protecting all other taxpayers.

In an humiliating defeat late on Thursday, Boehner said in a statement that the House of Representatives "did not take up the tax measure today because it did not have sufficient support from our members to pass. Now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff."

Boehner added that the House had "already passed legislation to stop all of the January 1 tax rate increases and replace the sequester mandated spending cuts with responsible spending cuts that will begin to address our nation's crippling debt. The Senate must now act."

Since the Republicans have made it clear that they won't even allow tax rate increases on the highest income earners, and the President is insisting on tax rate increases on incomes ov $400,000 or more, it would appear highly unlikely for Senate Majority Leader Harry Reid (D., Nev.) to push the Senate to pass anything palatable to the Republicans.

AMT Time Bomb

Many economists have predicted that "falling off the Fiscal Cliff" will push the U.S. economy back into recession. Another major problem over the short-term is the Alternative Minimum Tax. The AMT was enacted in the 60's, in order to make sure that taxpayers with a large amount of deductions to their taxable income would be forced to pay a minimum federal income tax.